Richcpaman Posted June 4, 2013 Report Share Posted June 4, 2013 Hello: Have a client who has a 401(k), and they borrowed $$ from the plan. Now, doing the payroll, they want to deduct the repayments from the paycheck. There is an interest portion and the prinicpal repayment. My gut tells me that the deducted amount is just a standard after tax deduction, with no tax savings, etc. Would I be correct? Rich Quote Link to comment Share on other sites More sharing options...
joanmcq Posted June 4, 2013 Report Share Posted June 4, 2013 Yes. They got the deduction when they initially contributed to the 401(k). Quote Link to comment Share on other sites More sharing options...
Pacun Posted June 5, 2013 Report Share Posted June 5, 2013 they want to deduct the repayments from the paycheck. They must deduct the repayments from the paychecks. The only time repayments don't come from paychecks is when the worker wants to pay off a loan in one payment. Everything is after tax as stated by Joan Quote Link to comment Share on other sites More sharing options...
jklcpa Posted June 5, 2013 Report Share Posted June 5, 2013 I hope someone advised this person that if he quits or loses his job that he has 60 days to repay the remaining loan or the remaining loan will be a taxable distribution to him, possibly subject the the 10% penalty depending on his age. Also, if he still has 401k deferrals coming out of his paycheck, you should check the plan documents to see if those contributions are allowed while the loan is outstanding. Quote Link to comment Share on other sites More sharing options...
Randall Posted June 5, 2013 Report Share Posted June 5, 2013 The subject line mentions W2. I don't think it has anything to do with the W2, unless memo type entry in box 14. There should be no tax consequences on repayments of principal or interest. Amounts noted on pay records of course. Quote Link to comment Share on other sites More sharing options...
Guest Taxed Posted June 5, 2013 Report Share Posted June 5, 2013 I hope someone advised this person that if he quits or loses his job that he has 60 days to repay the remaining loan or the remaining loan will be a taxable distribution to him, possibly subject the the 10% penalty depending on his age. Also, if he still has 401k deferrals coming out of his paycheck, you should check the plan documents to see if those contributions are allowed while the loan is outstanding. Very good point. People usually forget the disclosures they signed when they took the loan out and paying back a loan is the last thing on their mind when they lose that job. This comes to haunt them when that 1099-R arrives and they are least prepared to pay additional tax and possible 10% penalty. Each tax season that is a sore conversation when that issue comes up and there is no turning back! Last year my client purchased a motorbike with his 401(k) loan and when he lost his job defaulted. His wife says, can we sell the bike and pay back most of the loan and not pay the tax and penalty? You should have seen her face when I said NO! Quote Link to comment Share on other sites More sharing options...
Richcpaman Posted June 5, 2013 Author Report Share Posted June 5, 2013 Thanks for all the replies. Its the owner of the business, so default is low, unless the business crashes.... But I guess, he needs the money... I thought the deduction would just be an after-tax thing. Rich Quote Link to comment Share on other sites More sharing options...
Guest Taxed Posted June 5, 2013 Report Share Posted June 5, 2013 Just curious, do you also file the Form 5500 for the plan or there is another TPA that does that for the business? Quote Link to comment Share on other sites More sharing options...
Richcpaman Posted June 5, 2013 Author Report Share Posted June 5, 2013 Just curious, do you also file the Form 5500 for the plan or there is another TPA that does that for the business? Why would anyone ever do that? Quote Link to comment Share on other sites More sharing options...
jklcpa Posted June 5, 2013 Report Share Posted June 5, 2013 Why would anyone ever do that? The firm I worked for for many years did quite a few 5500s. We (really I did them all) did all of contribution calcs, plans' accounting, the tax filings, the participant statements, SARs, SPDs, everything except the plan maintenance and not considered to be plan admins. The only ones we did only accounting for were the defined benefit plans and the actuary did the rest of the work. I don't really miss that at all. Quote Link to comment Share on other sites More sharing options...
Guest Taxed Posted June 5, 2013 Report Share Posted June 5, 2013 Additional source of Revenue if you have the resources in your shop. Jklcpa did you use software called Datair or Pentabs to do the ADP/ACP testing and prepare form 5500?? Quote Link to comment Share on other sites More sharing options...
jklcpa Posted June 5, 2013 Report Share Posted June 5, 2013 No, I've never heard of those. None of the plans were 401k plans, all money purchase plans and profit sharing plans that I did, and that one defined benefit plan. This was a long time ago that I worked for any firm. I've had my own practice since late 1995. Quote Link to comment Share on other sites More sharing options...
Guest Taxed Posted June 5, 2013 Report Share Posted June 5, 2013 No wonder you missed all the fun! I bet you did the profit sharing allocations using a calculator or spreadsheet? If you had the software you just input the dollar amount that the employer wants to contribute or the max based on plan formula and the software did the rest. Nice reports too!! Quote Link to comment Share on other sites More sharing options...
jklcpa Posted June 5, 2013 Report Share Posted June 5, 2013 lol Yes, but everything was done with a calculator, spreadsheet, pencil and eraser when I started. I actually enjoyed doing the accounting for the plans with the reporting at FMV and determining the appreciation or depreciation. Now that was fun! Quote Link to comment Share on other sites More sharing options...
jainen Posted June 5, 2013 Report Share Posted June 5, 2013 >>Why would anyone ever do that?<< I can't answer for "anyone," but the Instructions for Form 5500 have several good reasons why SOMEONE should file the annual report. Quote Link to comment Share on other sites More sharing options...
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